Pep Boys 2010 Annual Report Download - page 21

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15
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In this section, we discuss and analyze Pep Boys’ executive compensation program, which we believe plays a
material role in our ability to drive strong financial results and to attract and retain a highly experienced and
successful management team.
Pay for Performance. Fiscal 2010 was our second consecutive profitable year marked by a 59% increase in net
earnings of $13.6 million. The increase in profitability was the result of positive comparable store sales across all
lines of business and improved total gross profit margins. Our return on invested capital also improved by 40% to
10.9%, as we continue to work toward our long-term goal in the high teens. We believe that our efforts in 2010
have also positioned the Company for future success as we opened 35 new locations – 28 Service & Tire Centers and
seven Supercenters – and continued to build cash on our balance sheet, $90 million at year end.
As a result, our executives realized the benefit of our heavily weighted performance-based compensation
program. The payouts under our annual incentive bonus plan properly rewarded our executive officers for
exceeding financial performance objectives in fiscal 2010 that were deemed to be important to the Company and its
shareholders. In addition, 60% of the long-term incentive awards made under our Stock Incentive Plan in fiscal
2010 require the Company to achieve specified thresholds of return on invested capital and total shareholder return
in fiscal 2013 in order to deliver any value to our executives. The 40% balance of the long-term incentive awards
granted in fiscal 2010 were in the form of stock options, which are also performance-based requiring appreciation in
the Company’s per share stock price in order to deliver value to our executives.
Of the components of compensation comprising our executive compensation program, the percentage mix
between “at-risk” and fixed compensation (excluding health and welfare benefits), at target levels, for each of our
named executive officers is set forth in the following table. “At-risk” compensation is only earned and paid if pre-
established performance levels are achieved.
Name “At-Risk” Fixed
Michael R. Odell 70% 30%
Raymond L. Arthur 57% 43%
William E. Shull III 57% 43%
Scott A. Webb 57% 43%
Joseph A. Cirelli 48% 52%
Compensation Philosophy.
Pep Boys’ executive compensation program is designed to:
• Enable Pep Boys to attract, retain, and motivate key executives who are critical for current and long-term
success;
• Provide targeted compensation levels which are competitive with our customized peer group (discussed
below) as to base salary, annual incentives and long-term incentives, and which are reflective of current
and/or expected future company performance levels;
• Support Pep Boys’ long-range business strategy;
• Establish a clear linkage between individual performance objectives and corporate or business unit financial
performance objectives; and